Marriage is often one of the most significant events in a person’s life, but it also brings important legal and financial considerations. When people who already own property get married and begin sharing funds, bank accounts, and homes with their spouses, they run the risk of their spouse gaining an ownership interest in that property, which can be frustrating for the original owner upon dissolution of the marriage.
Texas is a community property state, which means that, while each spouse may have their own separate property acquired prior to marriage, the couple each holds an equal interest in property they acquired after their marriage. The distinction between community and separate property is important in a divorce proceeding because a court has discretion to divide community property in a way that is just and right, but separate property cannot be divided by a court; it goes wholly to the owner. If you're entering into a marriage and want to safeguard your separate property, here are key strategies to consider:
1. Understand What Constitutes Separate Property
With some exceptions, assets acquired during marriage are typically considered community property, and it is presumed upon the dissolution of a marriage that everything a couple owns is community property. However, separate property can be excluded from that presumption if the owner can properly prove that it is separate by showing when or how it was acquired. Separate property includes:
• Property Owned Before Marriage: Any assets owned outright before your marriage are considered the separate property of the owning spouse.
• Gifts and Inheritances: Property received as a gift or inheritance during the marriage is typically separate, even if it’s received while married.
• Property Acquired by Will or Trust: Similarly, anything devised to one spouse through a will or trust is separate property.
• Personal Injury Recoveries: Except for any recovery for loss of earning capacity during the marriage, damages recovered for personal injuries sustained are the separate property of the injured spouse.
2. Keep Separate Property Clearly Separate—Avoid Commingling
One of the most crucial steps in protecting separate property is maintaining a clear distinction between separate assets and any assets acquired during the marriage. The commingling, or mixing together, of property is one of the easiest ways to lose track of a separate property interest. This is especially true for liquid assets, such as money in bank accounts.
• Bank Accounts: If you own a bank account that holds separate property, be sure to keep it separate from any joint accounts.
• Real Estate: If you owned a property before marriage and want to keep it separate, avoid making joint decisions or adding your spouse's name to the deed. Additionally, don’t use community property funds, such as income earned during marriage, to pay for maintenance, improvements, or mortgage payments unless you intend to share the property with your spouse.
• Personal Property: Items like jewelry, vehicles, or other personal possessions that were yours before marriage should remain in your name, and you should avoid using community funds to maintain or enhance them.
• Retirement Accounts: Avoid contributing wages earned during marriage into a separate property retirement account acquired prior to marriage, as those funds are generally considered community property.
3. Create a Prenuptial or Postnuptial Agreement
One of the most effective ways to protect your separate property is by entering into a prenuptial agreement or a postnuptial agreement. These contracts can clarify how property will be divided when the marriage ends.
A prenuptial agreement can specify which property is separate, how future acquisitions will be treated, and how debts will be handled. It can also address any increase in the value of separate property during the marriage—whether it remains separate or becomes community property. Postnuptial agreements can be used if you've already married but want to make changes or add clarity to your property ownership.
4. Keep Detailed Records of Separate Property
It is essential to maintain meticulous records of your separate property, particularly when it was purchased and with what funds. This documentation will be crucial if there is ever a dispute over whether property is separate or community in a divorce.
• Proof of Ownership: Keep records of how you acquired the property, whether through purchase receipts, inheritance documents, or other legal records.
• Tracking Appreciations: If your separate property increases in value during the marriage, as often occurs with real estate, keep detailed records of the appreciation and any investments you make into it.
• Avoid Using Community Funds: If you use community income to improve or maintain separate property, the property may lose its separate status, or the community estate could gain a claim to the increased value. It is important to keep personal records of any investments or expenses tied to the property.
5. Be Cautious About Marital Debt
While the focus is typically on property, it’s important to note that debts incurred during marriage can also affect the division of property in a divorce. Even if you maintain separate property, be cautious about taking on joint debts or mixing your financial obligations with your spouse’s, as it could impact how assets are divided in the event of a divorce.
Conclusion
Texas law provides a framework to protect separate property during marriage, but it is important to take proactive steps to safeguard assets. By keeping careful records, maintaining clear distinctions between separate and community property, and considering legal agreements like prenuptial or postnuptial agreements, you can reduce the risk of your separate property becoming part of the community estate.